A strategic default is when a homeowner walks away or abandons their home because they determine the home is not worth what they owe on it and therefore it is no longer in their financial best interest to stay there and pay the mortgage. They have the means to pay and are not in financial distress. They decide it is worth it to them to ruin their credit in the short term (next 5-7 years) to save the money they would need to come up with to sell it, since they are underwater. In states, where recourse is allowed, the lender can and will most likely come after the homeowner for a deficiency judgement, unless the homeowner files for bankruptcy protection. A deficiency judgement allows the lender to attach a lien on future properties or wages to recover their losses.
Why is it people think it is ok to walk away? Why not rent it out or stay there and enjoy the home. Over the long haul home values will come back. In the meantime if you run into a hardship and need to sell the banks will negotiate a short sale. This news video on strategic defaults in Florida tells more of the story. StrategicDefaultsVideo
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